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First a qualification. I am basing the following on info I
found on the net. If the info is wrong, then I stand corrected as
to who is or is not paying but not as to what happens when a
large entity does not pay. The specific city and company are used
purely for example purpose because of familiarity. What follows
could be any municipality with a similar size company calling it
home.
Lately in the city of my flower shop the big talk is a $10
million deficit in the school department. It's a funny story.
See, the department hired a couple people and these people, along
with the help of the city council and the school committee the
budget numbers became not real. They budgeted $59 million but
have spent $66.6 million. The total $10 million is a 2 year
deficit. The funny part...we had a surplus. Though, where the
surplus went to no one knows. The school committee insists there
was no funny business and even voted down an investigation. So,
if there was no funny business, then who gained and what did they
gain by covering up a deficit? What benefit is there about lying
about a deficit?
Of course, this is also a state funding issue. You see, the city
has the typical city size problems that the surrounding town do
not have. This article notes:
“The committee chair pointed out that Lincoln has a budget of $48
million to educate half the students Woonsocket teaches with a
mere $59 million.
"And they don't have the special needs we have. They don't even
have a quarter of the IEPs we deal with," she said.”
On top of this, we're one of those states that has been passing
ALEX type legislation. In particular we passed the one that
thinks it is smart of a state to set a cap on how much a
municipality can raise taxes in any given year. The city notes
that default is an option, but is currently begging the state
legislature to allow a supplemental tax bill.

I posted sometime ago on just how dubious the
ideas involving tax policy can be. It's not as simple as not
raising taxes or adding development. I have also posted on tax breaks and how much it
takes in job creation to make up for them. It's basically
impossible for job creation to cover the breaks never mind
actually producing income greater than the tax break. This brings
us to my flower shop's city. It all comes together in real life
for Woonsocket, RI.
Woonsocket has what should be considered a huge resource:
CVS/Caremark. CVS began in Woonsocket. They love Woonsocket. It's
their home. It was (WAS) a wonderful company if you talk to those
who worked there sometime before 1990 or so when the founder
turned the company over to more professional management as CVS
decided to get big. I'm certain there are many other towns and
cities which have a resource such as CVS/Caremark. They are
assumed to be a benefit to the municipality. . I'm also certain
these municipalities have experienced the negatives of having
such a resource, namely the threat of demise of the municipality
if certain privileges are not granted. These privileges that are
“requested” are often in the form of money that will not be paid:
tax relief. After all, an entity such as CVS/Caremark is
not considered a resource because it generates money. It is
because they give the people of the municipality something to do
to earn money that entities like CVS/Caremark are a
"resource". The threat is that the resource is 'A' major or
'the' major employer of the region.
Some would say the results of tax exemptions are simply good
negotiations. They are contracts. Are you aware of the phrase:
Contracts of Adhesion? A type of contract,
a legally binding agreement between two parties to do a certain
thing, in which one side has all the bargaining power and uses it
to write the contract primarily to his or her advantage.
Keep the phrase in mind as you continue reading. Also keep
in mind that good contracts have a performance clause.
This brings us to the issue of Woonsocket's deficit. Some have
asked why does CVS not just write a check? Not a gift, but a
check and then offer up it's best minds to help prevent this from
happening again. After all, why would a company like CVS want to
be in a place that is struggling so much? Do they not want their
environment to reflect their self image? There is a meme
circulating that only 10,000 people pay taxes in Woonsocket. Some
have said it is only 10% of the city's population that is
paying.. Either way, if that is all that is paying in a
municipality of 43,000 people, well then that is the total number
of property owners. Though Woonsocket has a lot of people renting
from those 10,000 property owners. Who is paying the taxes?
This got me wondering. How much does CVS/Caremark pay in property
taxes to the city. The data which follows was sent to my local
newspaper editor. I received no response.
I found a web site that allows you to look up any tax account in
any participating municipality. RI is
here. I typed in CVS first and came up with accounts
related to tangible assets. A lot of exemptions for those. We are
talking property taxes. So I looked up 1 CVS Drive and
got the account that appears to list the actual real estate
related to CVS/Caremark corporate operations. Account
number R00-0132-87.
The total assessment for 2011 tax year is $1,149,108.12.
2010 was $1,081,809.76. For 2009 it was $953,050.27. The
three year total is $3,183,968.15. This is a lot of money.
And all of it was exempted. The tax bills show $0.00 as total
due. The individual bills state: Adjustment type: 07, tax exempt
property. Based on this data, for the past 3 years, CVS/Caremark
or who ever owns the land they sit on has paid nothing. To make
matters worse, using their highest valued property, the
assessment was only 2.5%. My flower shop, as commercial property
has an assessment of 3.17%!
Ok, so they get a break. Usually these breaks are in exchange for
jobs based on supposedly creating a greater overall income
benefit for the tax gifting municipality.
I did some simple calculations as to how many people need to be
employed to make up the $1,149,108.12 per year. Using
City-data.com and the 2009 census for Woonsocket, the median
household income was $39,964, the median family income was
$48,680, median non-family income was $20,609, the per capita
median was $20,627. For these income ranges, the state's
income tax rate is 3.75%. Again, doing some simple math (you know
I like simple) produced a range of income tax collected of
$1825.50 (median family income) to $772.84 (per capita).
Using income tax is appropriate because if the City is not
collecting property taxes in exchange for jobs, then the state
income tax is where the money will come from. This means that the
City needs from CVS 630 more family job equivalents than employed
in 2011 to make up for the property tax not paid or 1487 more job
equivalents median income per capita. The State of RI has to
earmark the income tax it collects from 630 to 1487 jobs at
CVS/Caremark for Woonsocket just to make up for their exemption.
Of course, there is no way a state is going to cut up it's
collections that way. I mean, can you imagine what all the other
municipalities would do? Also, we're talking job equivalents. A
handful of people being paid enough, at 3.75% could do what 1487
jobs do. Say, a CEO who was paid $29.2 million in compensation
for 2010. Of course, only $1.5 million was “salary”. The rest was
pension and stocks transactions such that by the time the total
was rung up the CEO had $125 million “...for his final 14
months or so on the job...” 3.75% of $1.5 million is only
$56,250. Not much, unless you are earning Woonsockets median
income. Though 3.75% of $123.5 million is $4,631,250. To
bad it's payment via stocks. I doubt the stock value is treated
the same as salary or wages. Woonsocket and the state lose.
It's to bad because those who are paid via wages and thus paying
the income tax which has to make up for the property tax not paid
by CVS/Caremark means those workers are in actuality giving back
part of their earnings to CVS/Caremark. It's their wages that are
paying what CVS/Caremark would have paid if not for the
exemptions. What a racket. Of course, there is no specific
earmarking to Woonsocket of the income taxes collected via
CVS/Caremark jobs. In fact, the state has changed the formula for
distributing money to the towns thus Woonsocket is getting less
than it used to get for giving CVS/Caremark property tax
exemptions. That means, those property owners and renters in
Woonsocket are primarily carrying the load for CVS/Caremark
share.
Tax breaks of any type in exchange for jobs is a fools deal. It
is a devils bargain. It traps the host municipalities (local or
state) and creates a kind of contract of adhesion. The trap is
the “going Galt” threat. The use of such taxation activity to
improve a local economy only leads to the demise of the
municipality over time. There is just no way for one large entity
(CVS like entity) to off load it's share of the costs of living
onto a smaller entity (43,000 people of a municipality) such that
both grow in multiples that produce a greater outcome than had
both paid equally based on their income, wealth, use of the
commons, etc.
This is especially critical to understand during the current past
decades where wages have been declining relative to inflation. A
decline by the way that entities like CVS have promoted. It is
not like the majority of municipalities are full of only 1%'ers.
When the tax base is declining do to an inability to pay the
assessments (this is the true tax base identity not the property
values), giving tax breaks as a means to grow to those who's
incomes have risen as a result of fostering declining overall
income to the masses just seems stupid. Here, let me pay for that
knife you are going to stick in me. Again, what a racket!
Think about it. How can an entity that generates $7.944 billion
(RI 2013 proposed budget) support an entity
that generates a net revenue of $96.4 billion (CVS 2010) via give backs to
the larger entity such that the smaller entity will
grow?
Lastly, why do we continue to set policy based on an idea that a
company can exist without employees? Why do we insist on
ignoring the obvious, both are needed for a company to
live. Neither one is more important or stands
independently. Of course, the answer is because we
let companies threaten and sometime go Galt by pitting one group
of citizens against another. On a larger scale it's called
outsourcing.